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Ukraine May Not Reach IMF Pact Before 2012 Vote, RenCap Says

November 16, 2011

Nov. 16 (Bloomberg) -- Ukraine probably won’t resume its International Monetary Fund loan program before parliamentary elections next October as the authorities don’t want to anger voters by raising utilities tariffs, Renaissance Capital said.

To unlock the third installment of a $15.6 billion standby loan, the IMF wants Ukraine to raise household natural-gas prices, helping to trim the budget deficit by erasing losses at state energy company NAK Naftogaz Ukrainy. The former Soviet republic is seeking cheaper imports of the fuel from Russia as an alternative solution.

“A preferable option for the government would be an agreement with Russia on discounted imported gas prices, which will also belie the need to raise domestic gas prices so close to the 2012 elections,” RenCap economists Ivan Tchakarov and Anastasiya Golovach wrote today in an e-mailed research note.

Ukraine will resume discussions with the Washington-based lender, which has so far disbursed $3.4 billion under the borrowing program, after gas talks with Russia are completed, Prime Minister Mykola Azarov said yesterday. While Ukraine has said a new accord will be signed with its neighbor in the coming days, Russia denied today that a deal had been reached.

“Even if there is a gas agreement with Russia, which might meet the IMF’s requirement for a balanced 2012 Naftogaz budget, we believe the IMF will stick to its guns and require domestic gas-price increases before disbursing monies to Ukraine,” Moscow-based RenCap said.

In the absence of IMF support, Ukraine can cover its financing needs by drawing on its foreign-exchange reserves, which may decline to $24.5 billion by the end of 2012 from $31 billion at the end of this year, according to the note.

“Even without an agreement with Russia, only a major deterioration of global prospects will force the government to accept higher domestic gas prices in exchange for IMF money,” RenCap said.

--Editors: Andrew Langley, Alan Crosby

To contact the reporters on this story: Daryna Krasnolutska in Kiev at; Kateryna Choursina in Kiev at

To contact the editors responsible for this story: Balazs Penz at Claudia Carpenter at

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